On October 5, the SEC announced that it had charged CanaFarma Hemp Products Corp., a Canadian startup, and its co-founders with violating the antifraud provisions of the securities laws.  The SEC alleges that the company fraudulently raised $15 million from various investors.  CanaFarma allegedly told investors that the company processed hemp from its own farm in a fully integrated process.  While CanaFarma had a hemp farm, the SEC alleges that none of the hemp processed by the company actually came from the farm and was instead purchased from third parties.  The SEC further alleges that the company misstated its past revenue and made future revenue projections without any basis to do so.    

SEC also alleges that the co-founders of the company misappropriated $4 million of those funds for personal use or uses unrelated to the company.  Along with securities fraud, that conduct potentially exposes the co-founders to charges of criminal wire fraud, embezzlement, and money laundering.  In that vein, the co-founders are also the subject of a criminal investigation by the United States Attorney’s Office for the Southern District of New York, which has also announced charges against the pair.  If found civilly liable for the charges brought by the SEC, the company and its co-founder face permanent injunctions, disgorgement and prejudgment interest, and civil penalties, as well as officer-and-director liability and penny stock bars against the co-founders. 

The attorneys at Chilivis Grubman represent clients of all types and sizes in connection with SEC investigations and related securities litigation.  If you need assistance with such a matter, please contact us today.